The Alleged $7.5 Billion Fraud in Online Advertising "This is the biggest advertising story of the decade, and it's being buried."

By charles

So wrote Ad Contrarian Bob Hoffman, the retired CEO and chairman of Hoffman/Lewis Advertising, in June 2013 on a $7.5 billion scandal that has been developing
under the digital radar in the advertising world for the past few
years. The three main allegations, according to those who are making
them:

Half or more of the paid online display advertisements that ad
networks, media buyers, and ad agencies have knowingly been selling to
clients over the years have never appeared in front of live human beings.
Agencies have been receiving kickbacks and indirect payments from
ad networks under the guise of "volume discounts" for serving as the
middlemen between the networks and the clients who were knowingly sold
the fraudulent ad impressions.
Ad networks knowingly sell bot traffic to publishers and publishers
knowingly buy the bot traffic because the resulting ad impressions earn
both of them money—at the expense of the clients who are paying for the
impressions.

These charges have not seen much discussion within
the online marketing community. But the allegations have the potential
to affect everyone involved in online advertising—ad agencies, in-house
departments, agency and in-house digital marketers, online publishers,
media buyers, and ad networks. An entire industry—billions of dollars
and thousands of jobs—is at stake.

And it all starts with a single impression.

The impression that you make

(Wikimedia)

Online advertising is based on an "impression"—without the
impression, then an advertisement cannot be viewed or clicked or provoke
any other engagement. The Internet Advertising Bureau,
which was founded in 1996 and "recommends standards and practices and
fields critical research on interactive advertising," defines
"impression" in this manner:

a measurement of responses from an ad delivery system to an ad request from the user's browser

In another words, an "impression" occurs whenever one machine (an
ad network) answers a request from another machine (a browser). (For
reference, you can see my definition and example of a "request" in a
prior Moz essay on log analytics and technical SEO.) Just in case it's not obvious: Human beings and human eyeballs have nothing to do with it.
If your advertising data states than a display ad campaign had 500,000
impressions, then that means that the ad network served a browser
500,000 times—and nothing more. Digital marketers may tell their bosses
and clients that "impression" is jargon for one person seeing an
advertisement one time, but that statement is not accurate.

The impression that you don't make

(Wikipedia)

Just
because a server answers a browser request for an advertisement does
not mean that the person using the browser will see it. According to
Reid Tatoris at MediaPost, there are three things that get in the way:

Broken Ads—This is a server not loading an ad or loading the wrong one by mistake. Tatoris writes that these mistakes occur roughly 15% of the time.
Bot Traffic—Whenever hackers write these automated
computer programs to visit websites and post spam or create fake
accounts, each visit is a pageview that results an an ad impression.
According to a December 2013 report in The Atlantic, 60% of Internet traffic consists of bots.
Alleged Fraud—In Tatoris' words, "People will hide
ads behind other ads, spoof their domain to trick ad networks into
serving higher-paying ads on their site, and purposefully send bots to a
site to drive up impressions." Noam Schwartz described in TechCrunch two additional methods of alleged fraud:
compressing ads into a tiny one-by-one pixels that are impossible to
see and using malware to send people to websites they never planned to
visit and thereby generate ad impressions. AdWeek found in October 2013
that 25% of online ad impressions are allegedly fraudulent.

Tatoris crunches all the numbers:

We start
with the notion that only 15% of impressions ever have the possibility
to be seen by a real person. Then, factor in that 54% of ads are not viewable (and we already discussed how flawed that metric is), and you're left with only 8% of impressions that have the opportunity to be seen by a real person. Let me clarify: That does not mean that 8% of impressions are seen. That means only 8% have the chance to be seen. That's an unbelievable amount of waste in an industry where metrics are a major selling point.

Essentially: If you have an online display ad budget of $100,000, then only $8,000 of that ad spend has the chance to put advertisements in front of human eyeballs. (And that's not even taking into account the poor clickthrough rates of display ads when people do see them.)

If you are paying $0.10 per impression, then the $10,000
that you will pay for 100,000 impressions will result in only 8,000
human views—meaning that the effective CPI will actually be $1.25.

How bot traffic affects online ads

(Wikipedia)

In a Digiday article, Jack Marshall interviewed a supposedly reformed fake web traffic buyer on how the scheme works. Here are three excerpts:

How and why were you buying non-human traffic?
We
were spending anywhere from $10,000 to $35,000 a day on traffic. My
conversations with [these ad networks] were similar: They would let me
decide how much I was willing to pay for traffic, and when I told them
$0.002 or below, they made it clear they had little control over the
quality of traffic they would send at that price. Quality didn't really
matter to us, though. As a website running an arbitrage model, all that
mattered was profit, and for every $0.002 visit we were buying, we were
making between $0.0025 and $0.004 selling display ads through networks
and exchanges. The biggest determinate of which traffic partner we were
spending the most money with was pageviews per visit. Since we were
paying a fixed cost per visit, more pageviews equaled more ad
impressions. Almost none of these companies were based in the U.S. While
our contacts were in the US and had American names and accents, most of
the time we found ourselves sending payment to a non-US bank.

In other words, the publisher would allegedly pay an ad network
$0.0020 for a visit from a bot, and the resulting ad impression would
garner $0.0025 to $0.0040 in revenue—that's a gross margin of 25% to 100% for the publisher for doing nothing! It's no wonder that so many websites around the world may be allegedly involved in this practice.

Do you think publishers know when they're buying fake traffic?
Publishers
know. They might say "we had no idea" and blame it on their traffic
acquisition vendor, but that's bullshit, and they know it. If you're
buying visits for less than a penny, there's no way you don't understand
what's going on. Any publisher that's smart enough understand an
arbitrage opportunity is smart enough to understand that if it was a
legitimate strategy that the opportunity would eventually disappear as
more buyers crowded in. What we were doing was 100 percent intentional.
Some articles revolving around bot traffic paint publishers as rubes who
were duped into buying bad traffic by shady bot owners. Rather, I
believe publishers are willing to do anything to make their economics
work.

Do networks, exchanges and other ad tech companies do anything to stop this from happening?
We
worked with a major supply-side platform partner that was just wink
wink, nudge nudge about it. They asked us to explain why almost all of
our traffic came from one operating system and the majority had all the
same user-agent string. There was nothing I could really say to answer
that question. It was their way of letting us know that they understood
what was going on. It wasn't just our account rep, either. It was people
at the highest levels in the company. Part of me wished they'd said
"You are in violation of our TOS and you have to stop running our tags."
I would have been happy with that. But they didn't; they were willing
to take the money.

If these stories are true, then ad networks do not care that the
impressions are from bot traffic and publishers do not care that are
getting bot traffic because they are both making money. Who gets hurt?
The companies advertising their products and services.

The worst part of it all

(Flickr user Don Hankins)

It's not only that online display ads are alleged to be amazingly
useless and that many publishers and ad networks are allegedly involved
in sleazy deals. A March 2015 investigative report in Ad Age found the following:

Kickback payments tied to U.S. media-agency deals are real and on the rise, according to Ad Age
interviews with more than a dozen current and former media-agency
executives, marketers' auditors, media sellers and ad-tech vendors who
said they'd either participated in such arrangements or had seen
evidence of them. The murky practice—sometimes disguised as
(undisclosed) "rebates" or bills for bogus services—is being motivated
by shrinking agency fees and fueled by an increasingly convoluted and
global digital marketplace. "It's really ugly and crooked," said one
ad-tech executive who described receiving such requests.

Some arrangements go like this: A
large media shop, poised to spend $1 million with that ad-tech
executive's firm to buy digital ads last year, asked for $200,000 to be
routed back to the agency's corporate sibling in Europe. The $200,000
would pay for a presentation or presentations by the sibling's
consultants. But these types of presentations aren't worth a fraction of
the price tag, according to numerous executives dealing with the same
issue, who spoke on condition of anonymity for fear of losing business.

Essentially, here is what is allegedly happening:

Clients give money to agencies to purchase online display advertising
The agencies give the money to the ad networks
The ad networks give a portion of the money back to the agencies
The clients' display ads are only 8% viewable
The 92% non-viewable impressions still earn money for publishers and ad networks

I think we can see who the loser is—everyone is making money except for the clients.

During the same month as the Ad Age report, former
Mediacom CEO Jon Mandel reportedly told the Association of National
Advertisers Media Leadership Conference that widespread "media agency
rebates and kickbacks" were the reason that he left the agency business.

Heads in the digital sand

(Flickr user Peter)

I have yet to hear about this issue being addressed in any talk,
panel, or session at a digital marketing, martech, or adtech conference.
Prior to today, I have seen only one article each in two major
publications in the online marketing industry. (Mozzers, please correct
me if I am mistaken and have missed something major on this topic.)

Why is no one talking about this?

No marketing agency wants clients to know that 92% of its display
advertising spend is wasted. No advertising manager wants the CMO to
know that only 8% of the company's ads are reaching people at 100% cost.
No CMO wants the CEO to know that 92% of the entire ad budget is being
flushed down the digital toilet.

I myself would probably have not been permitted to write this
article when I held various agency positions in the past because I
managed clients' online advertising and some PR and digital marketing
clients of the agencies were advertising networks themselves.

(Today, I am the director of marcom for Logz.io, a log analytics
startup, and I have the luxury of being accountable only for the results
of my in-house work—and I do not plan to use online advertising anytime
soon. Still, I was a journalist in my first career years ago, and I
wanted to write this report because I think everyone in my beloved
industry should know about this explosive issue.)

Hoffman, the retired ad agency CEO who I quoted at the beginning, puts it better than I can:

How does
an agency answer a client who asks, "You mean more than half the money
you were supposed to be custodian of was embezzled from me and you knew
nothing about it?" How does an ad network answer, "You mean all those
clicks and eyeballs you promised me never existed, and you knew nothing
about it?" How does a CMO answer his management when they ask, "You mean
these people screwed us out of hundreds of thousands (millions?) of
dollars in banner ads and you had no idea what you were buying?"

Everyone
is in jeopardy and everyone is in "protect" mode. Everyone wants to
maintain deniability. Nobody wants to know too much. If display
advertising were to suffer the disgrace it deserves, imagine the
fallout. Imagine the damage to Facebook, which at last report gets over
80% of its revenue from display. Imagine the damage to online
publishers whose bogus, inflated numbers probably constitute their
margin of profit.

If the comScore findings
are correct and projectable, it means that of the 14 billion dollars
spent on display advertising last year in America, 7.5 billion was
worthless and constituted some degree of fraud or misrepresentation.

But clients, CMOs, and CEOs are going to read one of these
articles one day and start asking uncomfortable questions. I would
suggest that Mozzers—as well as all digital marketers and
advertisers—start thinking about responses now.

Responses to the scandal

(Flickr user Chris Potter)

Google, to its credit, has disclosed that 56% of its digital ad impressions are never actually seen—of course, the report was also released with the announcement of a new ad-viewability product.

Ginny Marvin summarizes at Marketing Land:

Google's
viewability measurement tool, Active View, is integrated into both the
Google Display Network and DoubleClick. Advertisers can monitor
viewability rates and buy ads on a viewable impression basis rather than
by served impressions.

Google also announced an update to
DoubleClick Verification last week, which includes viewability
monitoring, ad blocking, a content ratings system and spam filtering
capabilities.

The goals of the Media Rating Council
(MRC), an industry organization founded in the United States in the
1960s following congressional hearings into the media industry, are:

To secure for the media industry and related users audience measurement services that are valid, reliable and effective
To evolve and determine minimum disclosure and ethical criteria for media audience measurement services
To provide and administer an audit system designed to inform users
as to whether such audience measurements are conducted in conformance
with the criteria and procedures developed

The MRC has certified
"viewable impressions" as a legitimate metric (as opposed to "served
impressions"). The Interactive Advertising Bureau (IAB), mentioned
earlier, issued guidelines in December that online advertising networks should aim for at least 70% viewability.

Facebook, for its part, announced in February 2015:

We are working with the MRC and a
consortium of advertisers and agencies to develop more robust standards
for viewable impressions. Our goal is to work with the MRC, our
partners, and industry leaders around the world to help apply further
standards for feed-based websites like Facebook, mobile media and new ad
formats.

The American Association of Advertising Agencies, Association of National Advertisers, and IAB announced last year that they would create a new organization, the Trustworthy Accountability Group, to fight problems in the online advertising market and do the following:

Eliminate fraudulent traffic
Combat malware
Fight Internet piracy
Promote greater transparency

TAG now consists of representatives from Mondelez International, JCPenney, Omnicom, Motorola, Google, Facebook, AOL, and Brightroll.

Canada's latest anti-spam legislation aims to fight Internet malware and bots—but a big stumbling block is that most of the problem comes from outside the country.

Will these corporate and organizational responses be enough? For the following reasons and more, it's impossible to know:

Industry guidelines depend on voluntary compliance.
Industry recommendations do not have the force of law—any business that
thinks it can still make a lot of money by ignoring the guidelines will
likely continue to do so.
Possible penalties for past behavior. Regardless
of what reforms may occur in the future, should those who knowingly
engaged in such alleged fraud and deception in the past be held
criminally or civilly liable? (I'm not a lawyer, so I cannot comment on
that.)
IAB's 70% viewability goal. Should advertisers accept this metric as simply the nature of the medium? One estimate of the total display ad market amounted to $14 billion.
If the 70% viewability goal can even be reached, should and will
advertisers accept that $4.2 billion of their collective ad spend will
still be lost before their advertisements are even viewed by human
beings?

I have no answer—only time, I suppose, will tell.

But others are coming up with their own answers—those large
corporations that are spending billions of dollars a year on online
display advertising. As Lara O'Reilly wrote in May 2015 at Business
Insider, $25 billion in ad spend is now under review in what Adweek is calling "Mediapalooza 2015." O'Reilly gives one possible reason:

Media reviews let brands reassess
their ad spending, often by offering those contracts out in a
competitive bidding process. The companies include General Mills,
Procter & Gamble, Volkswagen, Visa, Sony, Coca-Cola, Citi, 21st
Century Fox ... the list goes on. Some of these — P&G, Sony, and
21st Century Fox — spend more than $1 billion on advertising each
year...

It could be
that marketers are finally getting fed up with the apparent lack of
transparency about where their budgets are actually being spent and why.

What marketers can do

(Image of an Indian online-marketing team I used with rights in a prior Moz essay

on the future of marketing departments)

Regardless of what the future will hold, here are my recommendations on how digital advertisers can respond:

Stop doing cost-per-impression (CPI or CPM) campaigns.
Traditional digital advertising strategy recommends that people use CPM
campaigns for brand awareness, cost-per-click (CPC) campaigns for
traffic, and cost-per-action (CPA) campaigns for sales and conversions.
In light of this scandal, I see no good reason to do CPM at all anymore.
Revise advertising KPIs and metrics in human terms.
Earlier in this article, I calculated the following change to a
hypothetical CPI value: "If you are paying $0.10 per impression, then
the $10,000 that you will pay for 100,000 impressions will result in
only 8,000 human views—meaning that the effective CPI rate will actually
be $1.25." In addition, half of all clicks in CPC campaigns might also be bots.
As a result, a $2 CPC result may actually be $4 when reaching human
beings is taken into account. Ad campaign analysts may want to take
alleged bot and fraudulent activity into account when calculating ROI
and whether display advertising is worthwhile.
Demand full disclosure. Clients should ask
agencies and media buyers if they are getting paid directly or
indirectly by ad networks. Agencies and media buyers should ad networks
how they are combating bot activity and any fraudulent behavior. Ad
networks should not turn a digital blind-eye to publishers who
intentionally use bots to make profits off of advertisers. If anyone
gives vague answers or otherwise disparages such questions, then that is
a red flag. Advertisers should demand and receive full, verifiable
information in light of what has allegedly been occurring.
Block certain countries from campaigns. According to a report in Ad Week,
China, Venezuela, Ukraine, and Singapore have "suspicious traffic"
rates of between 86% and 92%. (The rate in the United States is 43%.)
Use ad-fraud detection platforms. Companies such
as Forensiq, SimilarWeb, Spider.io (which was bought by Google),
Telemetry, and White Ops compare visit patterns with industry benchmark
behavior as well as check for malicious software proxy unmasking, verify
devices, and detect any manipulation.
Run manual campaigns as much as possible. The only
way to reduce wasted impressions significantly is to research and
implement digital ad campaigns manually rather than use programmatic ad
buying. Digital advertisers should research potential websites on which
they want to run advertisements to see if they are
legitimate—potentially even running ads on only the largest, well-known
sites but doing so continuously. This way, it might be best to focus
your ad campaigns on quality viewers rather than trying to maximize the
quantity of viewers by also including lesser-known sites.

Beyond the current responses of the ad industry and my present
recommendations for marketers, I do not know what will happen. My goal
here is simply to explain to digital marketers what has allegedly been
occurring. What the future will hold—well, that's up to we marketers and
advertisers.

Given Google's extraordinary ability to solve incredibly complex
mathematical problems, it's extremely unlikely that: (1) they are not
aware of the scope of inaccurate (or fraudulent) clicks or impressions,
and (2) that they cannot fix the problem or account for it using a
mathematical model. "It is difficult to get a man to understand
something, when his salary depends on his not understanding it." -Upton
Sinclair

micromano

edited 5 months ago